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The SECURE Act: What Does It Mean for You?

Jacob Jaegle, CFP®
February 6, 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed on December 17, 2019. There are some significant points in the law change that have been covered extensively in the media, but there are a myriad of smaller changes that are noteworthy as well.


Review a summary in the graphic below, then let’s take a look at some of the main changes of the bill to see how they may affect your financial plan.

Source: Author Jeffrey Levine, CPA/PFS, CFP®, CWS®, MSA at Michael Kitces, www.kitces.com

Elimination of Stretch IRA Provisions Introduces New 10-Year Rule

Previously, the beneficiary of an IRA could “stretch” the account over their lifetime – if beneficiaries were assigned correctly. The SECURE Act now requires that non-spouse beneficiaries who are 10+ years younger than the IRA depositor to distribute the IRA within 10 years of the death of the depositor. This change means that the beneficiary is forced to withdraw the IRA completely in a shorter span, which in many cases may cause a liquidation of the account while the beneficiary is still working – and likely in a higher tax bracket.


Contact your estate attorney to review your beneficiaries if you’re using a trust as a named beneficiary. If you are currently the beneficiary of an IRA where the original depositor passed away prior to Dec. 31, 2019: don’t worry, you are grandfathered under the previous law and can still enjoy the “stretch” IRA strategy.


RMD Age Changed from 70 ½ to 72

This provision is actually good news for those who didn’t want to start taking their required minimum distribution (RMD) at age 70 ½ as the SECURE Act moves the age from 70 ½ to 72. If you are set to turn 70 ½ in 2020, your first RMD can be delayed until you are age 72. Note: you can still withdraw from your IRA this year if you choose to do so. It is important to note that you can process a Qualified Charitable Distribution (QCD) from your IRA while you are still 70 ½.


IRA Contribution Age: Contributing After 70 ½ is OK

More good news! Thanks to the SECURE Act, you can now continue to contribute to your IRA after age 70 ½ as long as you have earned income. For those who are over 70 ½, contribute to their IRA and donate through a QCD, the QCD will be reduced by the IRA contribution. This is to ensure that individuals don’t just ‘recycle’ post-70 ½ IRA contributions into subsequent QCDs.


The Kiddie Tax – Déjà Vu

The tax on children’s accounts (Uniform Transfers to Minors Act) was revised in the Tax Cuts and Jobs Creation Act of 2017, which treated minor’s accounts very similarly to trust accounts for tax purposes. Now, the SECURE Act revokes the temporary, stricter tax treatment and puts into effect the previous tax laws:

  • The first $1,050 of income is received tax-free
  • The next $1,050 is taxed at the child’s tax rate
  • Income over $2,100 is taxed at the parent’s marginal tax rate

The new law does allow you to elect the “previous” tax rates, so if you favor reaching the top tax bracket more quickly, you are able to do so.


529 Changes: Expanded Options for Leftover Funds

One of the most common concerns parents have about opening a 529 plan is having leftover funds after the beneficiary graduates from college. Prior to the SECURE Act, qualified education expenses were limited to $10,000 in K-12 tuition and certain college expenses. The SECURE Act expands the definition of qualified higher education expenses to include student loan payments (up to $10,000 per child) and costs of apprenticeship programs (as long as the apprenticeship is approved by the Department of Labor).


Tax Credits for New 401(k) Plans and Automatic Enrollment

If you are a small business owner and open a 401(k) or 403(b), you may receive tax credits for the number of employees who sign up, as well as for auto-enrollment for your employees. If you’re a small employer but missed the Dec. 31 new retirement plan cutoff, don’t worry. The SECURE Act now has a provision that allows for new profit-sharing plans, qualified annuity plans, stock bonus plans, and other employer-funded plans to be established up to the due date of the employer’s tax return.


And More…

The SECURE Act is an expansive piece of legislation, and I’ve only covered some key points. I encourage you to meet with your financial advising team to discuss how you may be affected. If you would like to meet with someone on our team, click here.

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Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

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